After a busy time which saw a number of mergers and acquisitions across advice firms, or attempted buys of peer groups at the licensee level, the market will see more consolidation within “like-minded practices” in those advice groups.
Keith Cullen, managing director of ASX-listed WT Financial Group, one of the fastest growing financial adviser networks with more than 400 privately-owned advice practices, says he would not be surprised to see his advice network with “with more advisers but 40 per cent less practices in three to four-year time”.
“I think there will be more consolidation in advice network space and I think there will be considerable consolidation and on the practice level as well,” he tells Professional Planner.
“That is another focus and another opportunity for advice networks like ours to help the advisers and the practice principals deliver on those outcomes they are seeking with mergers and acquisitions and succession planning.”
Cullen’s comments come ahead of the Professional Planner Licensee Summit on 18-19 June where he will join a panel discussion about the different licensee models currently in the industry and how WT has navigated a challenging environment for licensees.
He says that several practices are in discussions to merge as they see the advantage of putting their businesses together.
These mergers will not be limited to “just two advisers in the same market” coming together but will rather see advisers practicing in different cities wanting to team up with similar partners across the country to build, for instance, a national footprint.
“For an advice practice it is much better to do that [merge] within the network,” Cullen said.
“With all those practices [in our network] there are a lot of them which are like minded that would make really good partners together and they can either then do a really big proposition in a single market or look to build an east coast network or a national network.”
Building scale
At the same time, Cullen stresses that his network puts the professional development of its practices at the centre and focuses on redefining the relationship between the network operators and its advice practices, but scale remains crucial to ensure practices and advisers have access to the highest level of professional development.
“Our central passion is certainly professional development and it’s absolute world-class and a centrepiece of our offering,” he says.
“We spent $2 million a year on adviser education training – that is how we have got the best [educational] program in the world but you can’t have that level of program if you don’t have the scale that we’ve got.”
Cullen runs the group which business model is based on a mix of fixed fees and variable fees, and also revenue sharing which he says ensures both a fair allocation of resources and complete alignment with practices.
“I don’t know about other people’s business models but that is ours. It’s this value partner relationship, where we generally see as a partnership, we are striving for the outcomes together with our practices – it’s a model that is working for us.”
Blue sky opportunities
With the old vertically integrated models largely gone and the incredible imbalance of supply and demand for advice, Cullen says he believes there will be “blue sky opportunities” to meet the underserved advice needs in terms of episodic and transactional advice.
“There are enormous opportunities there both within the current framework and also within the potential new frameworks so there is a blue sky opportunity. I think within all of that, there will be opportunity for a range of business models to emerge,” Cullen says.
At the same time, he warns, one of the biggest challenges for some advisers is still shifting their mindset from what was a mass market opportunity towards the new professional model based on service provisions and charging a decent fee.
“I think there is a lot of people in advice networks in the country that there are still grappling of dealing with that traditional subsidised network model where you did not really make money out of running the network but you made money out of the volume bonuses,” he says.
Although there is a large part of the market that can be served just with good information and a basic understanding what their financial options are, Cullen stresses that Australians are retiring in significant numbers with the wall of capital coming into retirement and they will continue to need advice.
“[We] have got all of the baby boomers starting to pass away and hand their wealth on to the Gen Xs so you have got this transfer of capital from one generation to the next, and [we] have got an increasingly complex superannuation and tax system plus increasingly complex social security system,” Cullen says.
“People need advice and the right advice can have very material impacts.”
Cullen says that although the investment advice is still a critical part of what people do, it is equally important for people to have a right structure around decisions such as pushing more money into their superannuation, making the right contributions when in retirement or how to structure their pensions.
“That sort of advice, is incredibly valuable and can make enormous differences to people’s outcomes and people need the right professional advice around that,” Cullen says.
